How to handle tax and social security for overseas employees

Meeting the correct tax and social security regulations when paying overseas employees is crucial to running a global business and ensuring your affairs are in order.

5 minute read

If your company is based overseas, has international branches, or employs staff working remotely in another country, you’ll no doubt be managing an international payroll. Similar to when deducting and paying income tax and National Insurance in the UK, you may find there are a number of additional steps you’ll need to take when paying overseas staff in their local currency.

Each country has their own laws and regulations regarding taxation and forms of social insurance and benefits payments such as social security. These often fall upon the employer to fulfil, however the responsibilities of the employer can differ greatly depending on the scenario.


Paying an overseas employee

Typically speaking, there are no tax withholding obligations on the UK employer when paying the overseas employee. This is the case if the employee is not a resident of the UK, performs their work overseas and does not perform any major work duties inside the UK. This of course do not include meetings or training that they may attend in the UK.

If the employee meets the above criteria, then as an employer you are merely required to pay the employee their gross salary. The local tax and social security payments required will need to be made by the employee to the government or local office of the country they reside in. This is something that should be made aware to the employee and stipulated in writing between both parties to avoid tax and social security being neglected or paid twice.


Paying an overseas employee from your local office in their country

Your responsibilities for withholding the tax and social security of your overseas employees can change if your company has a corporate presence in the country they are residing in. This can include a limited branch or established corporate entity, and would require your organisation to withhold the social security payments and tax of their employee. 


Paying an employee who splits time between the UK and another country

The situation can differ slightly if one of your employees routinely splits time between your UK office and your international branch. In this instance, whether or not you need to withhold tax and social security depends entirely on where your employee declares as their residence. If they maintain residency in the UK, then you will most likely need to deduct PAYE (pay-as-you-earn) like with other UK employees. However, if they opt to declare an overseas address as their residence, then they will need to abide by the local tax regulations and you will not need to withhold any of their salary on the UK side, but your overseas branch may need to withhold tax and social security depending on the local taxation laws. 

Your obligation to pay the tax and social security of overseas employees can differ greatly depending on the type of contract you have with your employee as well as the country in which they are based. That’s why it’s always smart to consider the UK government guidelines for employers as well as to conduct your research on local taxation rules when opening an overseas office or branch. 


How to limit your currency exposure when paying overseas salary

If you’re managing a large amount of overseas staff, whether they be full time, part time or freelancers, working with a foreign exchange specialist could help you to save time and money on your international payments.

Your employees, wherever they are based, will surely be expecting the same salary to arrive in their account every month, regardless of which country it is coming from. However, exchange rate fluctuations can have a huge impact on the figure you need to send abroad every month to cover wages. This can make it difficult to predict your business expenditures and can make some months considerably more expensive than the others.

Fortunately, we offer a forward contract, which allows you to lock in an exchange rate for up to two years (this may require a deposit). This means that when you transfer funds for your international payroll, you’ll know exactly how much it will cost for the duration.


Our wider range of specialist tools can also cater for any other of your costs or expenses, helping to limit your risk and protect your profits. Enjoy better exchange rates than with high street banks as well as guidance and support from our expert team. Speak to a specialist today or sign up online. 


moneycorp and any other company in the moneycorp group do not provide tax advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax advice. You should consult your tax advisor before engaging in any transaction.


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